Tay A, (2003)

‘Assessing Competition in Hospital Care Markets: the Importance of Accounting For Quality Differentiation’

Rand Journal of Economics, 34 (4): 786-814

• Examines the importance of accounting for quality differentiation when estimating the effect of competition in the spatially differentiated hospital care market.
• Uses national U.S. cross-section data to ask how patients weigh differences in hospital distance and quality when deciding where to be treated.

Key results:

• Estimates suggest that while spatial differentiation is important, patients are willing to incur the greater costs of travel to obtain a higher-quality service (the quality-distance trade-off.)
• Demand responses to both distance and quality are substantial so that quality and distance are important determinants of hospital choice.
• The estimates also suggest that, when a hospital is closed, patients do not substitute toward alternative hospitals in proportion to current market shares, implying that geographic market concentration is an inappropriate measure of hospital competitiveness.

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